Bloomberg News

Kenya Inflation Slows, Bolstering Case for Lower Rates

June 29, 2012

Kenyan inflation slowed to a 15- month low in June, adding pressure on the central bank to cut its benchmark interest rate for the first time since January last year.

The inflation rate in East Africa’s largest economy declined for the seventh straight month to 10.1 percent from 12.2 percent in May, the Kenya National Bureau of Statistics said today in an e-mailed statement. In the month, prices fell 0.8 percent, as food costs, which carry a 36 percent weighting in the consumer price index, declined 1.9 percent and transport prices including fuel dropped 0.4 percent, the agency said.

Inflation is down from a peak of nearly 20 percent in November, backing the view that the central bank has room to lower borrowing costs and help support an economy the World Bank says is vulnerable to global and local shocks. The Monetary Policy Council brought forward its next meeting by five days to July 5, it said on its website today, without giving a reason.

“It’s clear that economic growth is slowing a bit because of tighter credit,” Solomon Alubala, a trader at Cooperative Bank of Kenya Ltd., said by phone from Nairobi, the capital. “That’s increasing pressure on the central bank.”

Kenya’s central bank raised its benchmark interest rate to a record 18 percent last year to curb price gains and support the shilling, and has kept it there this year.

The bank has signaled it’s waiting to see whether seasonal rains after last year’s drought will boost harvests and ease inflation pressures, and assessing the threat of rising oil prices. Kenya relies on imported fuel for all of its needs.

Inflation Target

Inflation exceeds the 9 percent target the government set for the fiscal year ending this month, making it more difficult to predict what the central bank will decide at its next rates meeting, Chuba Ogbue, treasurer at UBA Kenya Bank Ltd., said yesterday by phone from Nairobi.

The bank may refrain from a rate cut in a bid to alleviate depreciation pressure on the currency stemming from the widening gap in the current account, Alubala said. Kenya’s current account deficit is forecast to balloon to 15 percent of gross domestic product this year, one of the world’s biggest, according to the World Bank, from 13.1 percent of GDP last year.

Consumption should drive Kenya’s economy to grow 5 percent next year, although expansion could slow to 4.1 percent in the event of global financial shocks or domestic political upheaval before next year’s election, the World Bank said June 18.

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus